Tax reform done right

Posted Saturday, Aug. 09, 2014  comments  Print Reprints
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In Washington, short-sighted policies proposed for political messaging purposes often eclipse substantive dialogue.

That is exactly what we are seeing as congressional Democrats and the Obama administration play election-year politics with the growing challenge of corporate inversions.

Over the past few months, many companies have responded to our overly burdensome corporate tax system by re-domiciling their headquarters overseas.

Such moves leave the United States with a smaller tax base that results in many billions of dollars in lost revenue. Clearly, this is a cause for concern, and, unfortunately, it is unlikely to go away anytime soon.

Despite this grim reality, every Democratic proposal offered so far to deter such action has been purely political. What’s more, these proposals contain punitive and retroactive provisions that would exacerbate the problem.

Instead of working with Republicans on a productive way forward, Democrats have sought to politicize the issue — conveniently timed given the upcoming election — by engaging in name-calling and labeling such businesses “corporate deserters.”

Last month, Treasury Secretary Jack Lew even questioned the “economic patriotism” of congressional tax writers on the issue.

This problem demands much more focus than campaign talking points.

The real solution would be to create a tax environment more favorable to businesses in this country.

Fortunately, the administration and many congressional Democrats agree with me on this basic idea, though there are disagreements on important details.

But absent such reform, which I acknowledge is unlikely in the short term, there may be a way to address inversions in a bipartisan manner, if we follow four simple principles:

• It is imperative that any such interim proposal be a bridge to our ultimate solution to address the cause of the problem: our obsolete tax code.

• Any interim proposal should not be retroactive. Imposing arbitrary retroactive restrictions would further complicate the goal of comprehensive tax reform and impose additional burdens on U.S. businesses.

• The approach should move us toward a territorial tax system, whereby businesses would be taxed only on what they earn within the United States, and should not enhance the bias in favor of foreign takeovers.

• Most importantly, any interim proposal must be revenue neutral.

If Democratic leaders continue to play politics, they risk an acceleration of inversions. We must put politics aside and work together to find a solution that addresses the root of the problem.

I stand ready and willing to do just that.

Orrin Hatch, R-Utah, is the ranking member on the Senate Finance Committee.

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